We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bullish
USD/JPY
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The #USD spent the bulk of Q2 in a range after a climactic Q1; and with a series of risk themes continuing to push, combined with an election in November, the door appears open for more vol in USD. Download our USD trading guide here: https://t.co/2Wo7EcwAht https://t.co/BA5dWk4wTt
  • $USD hegemony is at risk thanks to changes in the global economy and the long-term consequences of the US-China trade war. Get your market update from @CVecchioFX here:https://t.co/5GO9UrvO4y https://t.co/OTTEmg76W8
  • The immediate focus is on a break of this multi-week consolidation formation in the Australian Dollar with the broader rally vulnerable while below 7042. Get your AUD technical analysis here: https://t.co/iEYos1ioBc https://t.co/kuzB3Eqps0
  • #Gold prices have rallied to nine-year highs with the breakout testing multi-year uptrend resistance into the open of Q3. Can the rally be sustained? Download our latest Gold trading guide!: https://t.co/3KO2QWOnOt https://t.co/YIIGZdeIAJ
  • Why financial market traders must monitor both monetary and fiscal policy? Find out from @MartinSEssex here:https://t.co/Fkzk88Y5gm https://t.co/zerRXZC1Tq
  • Get your snapshot update of the of relative currency strength and exchange status from around the globe here: https://t.co/DmhBkd4B0k https://t.co/uj93z2SHpH
  • The Australian Dollar’s surge from the March lows may be coming to an end as bearish patterns begin to line up on multiple time-frames. Check out our #AUD trading guide to learn more here: https://t.co/pjfm07tqFd https://t.co/VypHLra1ER
  • The Evening Star candlestick is a three-candle pattern that signals a reversal in the market and is commonly used to trade forex. Learn more about the evening star candlestick pattern here: https://t.co/8OTE7m01IG https://t.co/Vumcng7UB3
  • After a miraculous recovery in Q2, equity markets will be left juggling the Fed’s policy and the threat of a second covid wave, all in an election year. Evidently, traders will have their hands full in Q3. Read our equity forecast here: https://t.co/JARqbOKIeM https://t.co/Ms6zEucjqg
  • Hey traders! I'm sure you've all heard about trend trading. Sharpen your knowledge here: https://t.co/jkliL5sxj7 https://t.co/uvlv1MCAHI
Canadian Dollar Trading: US Economic Growth Takes Center Stage

Canadian Dollar Trading: US Economic Growth Takes Center Stage

Share:

US Dollar, Canadian Dollar, US-Canada Trade Relationship, Understanding the Core-Perimeter Model – TALKING POINTS

  • How to trade the Canadian Dollar against the US Dollar
  • What are the US-Canada trade, economic relations and why do they matter?
  • How the relationship between Canada and the US fits into the Core-Perimeter model

When the global economic growth outlook is positive, Canadian assets tend to become more attractive than safer US counterparts because their cycle sensitivity while making them riskier allows for comparatively higher returns. This typically results in a weaker USD/CAD exchange rate because investors are valuing yield over stability.

US-Canada Trade Relations

The US is not only Canada’s largest trading partner but also the world’s biggest consumer-driven economy. This internally-oriented growth model makes the US less vulnerable to external shocks relative to a more outward-facing economy like Canada,which strongly relies on exports southward to drive performance. For perspective, over 74% of Canada’s cross-border sales are to the US market, whereas the latter only sends about 12 percent of its total exports to the former.

United States Market: A Key Destination for Canadian Exports (2018)

Chart showing US-Canada trade

A positive backdrop for US growth typically boosts demand for Canadian goods and the total volume of trade between the core and perimeter expands. As exports flow from the perimeter to the core, capital pours in the opposite direction and helps push the Canadian Dollar higher.

This dynamic is amplified by capital rushing into the perimeter economy from investors looking for cycle-channeling CAD-denominated assets to deliver comparatively more generous returns. Under these conditions, the USD/CAD exchange rate typically falls.

However, if some sort of economic shock sees growth derailed – be it a financial crisis or policy-mandated slowdown amid a novel virus outbreak – the stream of capital between the core and perimeter reverses. The result is typically a stronger USD/CAD exchange rate.

As investors become more risk-averse, they tend to cut exposure to the cyclically-sensitive Canadian Dollar and CAD-denominated assets. Instead, they opt for relative safety offered by deeper liquidity and steadier growth dynamics at the US core.

Coronavirus Pandemic Sent Canadian Dollar Plunging as US Dollar Rose

Chart showing USD/CAD

This tendencycan be especially pronounced considering that the Greenback is the world’s number-one reserve currency, making it a haven to flock to in uncertain times. This feature helps to tame volatility that would otherwise be comparatively higher in a less-liquid environment, i.e. in the perimeter.

The 2008 global financial crisis offers a particularly profound example. Despite the turmoil’s US-centric origins, the Greenback found itself in the spotlight as demand for volatility-dulling liquidity directed capital flows.

Key Takeaways From the US-Canada Relationship

  • The Core-Perimeter model shows that during times of uncertainty, capital typically flows from the perimeter economies (Canada) into the core (US)
  • Conversely, when risk appetite is high, capital flows into perimeter (Canada) economies and helps drive up local assets
  • Canada’s economy – and thereby its currency – are strongly reflective of the US business cycle

MORE MACRO FOREX TRADING GUIDES IN THIS SERIES

--- Written by Peter Hanks, Currency Analyst for DailyFX.com

To contact Peter, use the comments section below or @PeterHanksFXon Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.